I am the founder of agency search consulting firm, AVIDAN STRATEGIES. I have more than 30 years of leadership experience with top global Madison Avenue agencies, managing iconic brands for companies like Procter & Gamble, Kraft Foods, Bristol-Myers, General Motors, Pfizer, Mars, The Wall Street Journal,Sprint and Coca-Cola. During the course of my career I advanced to become a Managing Partner of WPP's Berlin Cameron/Red Cell, EVP and head of business development for Saatchi & Saatchi, the first Global Executive Director Havas advertising, and EVP account management at Y&R. I served on the global board of directors of Havas advertising and the North America Executive Committee of Saatchi & Saatchi. During my leadership tenure both Berlin Cameron and Havas, respectively, were named "Agency of the Year" multiple times. I am a native of Israel, a former army officer, and a Columbia MBA. You can reach me at avi@avidanstrategies.com

In the current near-zero interest environment for short-term credit, extending payment has relatively little impact on agencies, making such moves easier for advertisers to implement. The real crunch will come when interest rates will eventually return to their historical levels as the economy picks up. At 5% or 6% interest, 120 days slow pay on receivables, agencies of all sizes and their vendors will be marginally viable. They will need to borrow at high interest rates to sustain activity while waiting 120 days to get paid. This will erode their margins severely.

New agency start-ups are certain to virtually cease and the total number of ad agencies could shrink dramatically, as will their dependent suppliers. It may also lead to a squeeze on talent, as agencies will shed staff in order to survive.

As it is, agencies are confronting a much broader set of competitors for the marketing dollar. Google and Facebook are adding creative talent, IBM made a $100 million investment in marketing consulting, Amazon is entering the data business, while Adobe and Salesforce are going into marketing advisory.

Ironically, extended payment terms will also hurt the very companies that plan to slow their payments. From personal experience, I know that major advertisers like to achieve most-favorable-client status with their agencies in order to attract the best agency talent to their business. But, if they end up paying more slowly than other clients on the agency’s roster, they may not get the best talent.

If the ad industry is not able to thwart this move toward extended payment terms, this could ultimately lead to the end of the agency business model, as we know it. If agencies cannot sustain themselves financially, marketers may have to resort to a new arrangement in which Madison Avenue’s role as an independent entity could give way to a system akin to in-house agency relationship, and where agency vendors are paid directly by the client.

Of course, agencies can always say no if offered extended terms, as some “experts” naively suggest. But I doubt many agencies will do so. Losing a major account always stings, especially for the public holding companies whose stock can be badly rattled by that kind of news.

My discussions with agency leaders on this subject often result in their lamenting the fact that over the years the client/agency relationship has continued to deteriorate. They all mention the fact that agencies have slid down the ladder from strategic partners, and point to the apparent lack of client loyalty.

While the trend of treating agencies as vendors is harmful, agencies are not without blame. There is little innovation from agencies around the new role of the consumer or the need to migrate away from the old model of advertising to technologies and platforms that compete effectively in the attention economy. Few agencies differentiate themselves on expertise in social media. Fewer still are putting data mining at the center of creative development. And how many big agencies are building apps and platforms?

It is easy to see how the industry creates its own parity, and how price is the point of differentiation much too often. If agencies want to counter those harmful financial trends, they need to start branding themselves as hothouses of innovation and develop ROI tools that will provide decisive measurement of how effective the advertising is..

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